C.M. Defends BVI's Position As Premier Financial Jurisdiction

The government of the Virgin Islands has announced several measures aimed at ensuring that the territory will be recognized by the international community as a reputable and premier offshore financial jurisdiction. Chief Minister and Minister of Finance the Honourable Ralph T. O'Neal updated Members of the Legislative Council on Tuesday on the ongoing harmful tax and related initiatives, which pose a severe threat to offshore jurisdictions everywhere. The Organization for Economic Cooperation and Development (OECD) governments are in the process of identifying and studying offshore financial jurisdictions and are taking steps to eliminate what they consider as adverse consequences these jurisdictions have for the world economy. As part of the process, the OECD, following publication of its report "Harmful Tax Competition: An Emerging Global Issue", has engaged in an extensive fact finding review of 49 targeted jurisdictions and dialogue on their findings with officials from a number of jurisdictions initially identified. In this regard, a BVI delegation visited Paris in June 1999 for discussions with the OECD Forum.

The four criteria for determining harmful tax competition include the existence of low or no tax, an unwillingness to exchange information (particularly tax information), the lack of transparency and the absence of substantial activity. "It will not surprise Honourable Members that, acting through the Financial Services Department, this government has repeatedly reaffirmed to the OECD etc., commitment to cooperating internationally with all global efforts aimed at preventing abuse of the international financial system and at ensuring that all activities within the territory's financial sector are regulated to international standards," Hon. O'Neal stated. The OECD intended to publish a blacklist of tax havens this month and to use this list as the basis for applying punitive sanctions by OECD members against the jurisdictions listed. Responding to criticism, particularly from the Caribbean region about the flawed OECD process, the grouping of the world's wealthiest nations has now advised that while it still intends to publish a list of tax havens in June 2000, the list will not be used as a basis for coordinating defensive actions against the listed countries. The list will be used as the starting point for drawing up a new second list of uncooperative tax havens to be published in June 2001. The OECD said those jurisdictions, which, prior to June 2000, make a high level political commitment to eliminate all harmful tax elements from their regimes, would not appear on the list.

"I welcome this change of emphasis," said the BVI Chief Minister. But he hastened to state that the territory should not become complacent, as the pressure against offshore centres is not off. A delegation comprised of the Director of Financial Services, the Honourable Attorney General and Consultant Michael Riegels, Q.C, had discussions in Washington April 25th with the Co-Chair of the OECD Study Group on the Americas.

Chief Minister O'Neal said the delegation informed the OECD representatives that BVI was prepared to move rapidly to address OECD concerns by agreeing to an amendment to the Mutual Legal Assistance Treaty (MLAT) with the USA to include within its parameters access to information relating to criminal tax investigations and to eliminate the requirement for dual criminality. The BVI would also introduce Compulsory Powers Legislation which had been in draft for some time and provided for access to information within the BVI on a Regulator to Regular basis. The territory would also seek to address the "opaqueness of IBCs" by requiring particulars of directors to be recorded at the Company Registry and restricting the mobility and anonymity attached to bearer sharers by requiring them to be deposited with licensed financial institutions, which would be made aware of beneficial ownership of such shares. "Mr. Speaker, I am pleased to report that these proposals go a long way to addressing the immediate concerns of the OECD...ironing out these issues will become top priority for government within the next few months."

DEEP DISAPPOINTMENT

Meantime, in another statement presented in the Legislative Council, Chief Minister and Minister of Finance Hon. R.T. O'Neal expressed deep disappointment at the unfounded inclusion of the BVI in group III of the May 25th categorization of offshore centres by the Financial Stability Forum (FSF) of the G7. According to the FSF, these are jurisdictions generally seen as having a low quality of supervision and/or being non-cooperative with onshore supervisors, with little or no attempt being made to adhere to international standards.

"We have made great efforts...to demonstrate this country's commitment to be responsive to the legitimate international concerns of the developed world and to be a responsible member of the international financial community. It is discouraging when the developed world does not seem able to recognize and acknowledge our efforts," he lamented. He said his government supports the idea of an assessment process for determining which jurisdictions are complying with agreed benchmarked international standards and/or best practice regulatory norms and procedures where agreed international standards do not presently exist. "We insist however, that such a process should be fair, objective, transparent and must accord with the principles of due process and natural justice." The BVI leader insisted that the BVI has chosen to be well supervised, it possesses the necessary expertise and it is cooperative. "It is not as if we make a secret of our robust prudential supervisory practices; nor of our highly selective licensing procedures...nor indeed of our well established anti-money laundering regime and our track record of gathering and sharing information with law enforcement and regulatory organizations." He said the BVI remains fully committed to this process.

In a third statement on the subject, the Minister of Finance announced that a delegation would be travelling to Miami for discussions with the Chair of the Financial Action Task Force (FATF) Review Group of the Americas. Chief Minister O'Neal said the group would outline BVI proposals to address the legitimate concerns of the FATF. The Caribbean FATF conducted a mutual evaluation exercise 11 months ago on the BVI's anti- money laundering initiatives and according to the report, approved at the October 1999 plenary, was generally considered as one of the most favourable given any country by the CFATF. Yet the BVI was included as part of 19 of the 25 CFATF member states on a list of 66 jurisdictions compiled for review by the FATF ad hoc group of non-cooperative countries and territories. PRIORITY JURISDICTION "No less serious, Mr. Speaker, is the fact that the FATF has identified BVI as a priority jurisdiction for immediate review under its non-cooperating countries and territories programme, whilst at the same time acknowledging our robust anti-money laundering regime and even though the latest International Narcotics Control Strategy Report...does not consider BVI a prime money laundering jurisdiction," he added.

He re-emphasized the regulatory measures put in place in the BVI over the years and said this evinces the territory's firm resolve to play its part in the combat of cross border commercial crime. He said this raises the question, "with whom are we not cooperating". Hon. O'Neal said this unfortunate occurrence could have been avoided if the FATF had awaited the June publication of the KPMG Independent Review and Analysis of Financial Services Regulation on Bermuda and the Caribbean Overseas Territories. "An unintended consequence of the initiatives has been that they have prevented the government from moving forward on measures the government and the private sector have been collaborating on to improve regulation of the industry." He however reported that work on these initiatives is ensuing and government is well advanced in moving forward plans to enact compulsory investigative powers legislation, together with amending legislation to the IBC Act, the Company Management Act, the Banks and Trust Companies Act, the Mutual Funds Acts and the Anti-Money Laundering Code of Practice, during this calendar year. "These should effectively put to rest questions of our willingness to cooperate with all bodies involved in the cross border combat of white collar crime, including money laundering," Chief Minister O'Neal declared.